The digital asset exchange Gemini, run by the Winklevoss twins, will be offering investors the ability to place large orders outside of the exchange’s order book. This move gives Gemini the chance to compete with other companies that specialize in high-volume virtual currency trading for institutional markets.
Central limit order books are sufficient to facilitate smaller trades, but orders that exceed the liquidity of the order book can have harmful effects on the market as a whole.
Block trades are a way to avoid this problem. Block trades are large orders that settle between a customer and a market maker directly, outside of the open market.
Starting at 9:30 AM EST on Thursday April 12th, any Gemini customer will have the ability to place a block trade. The customer will specify whether they wish to buy or sell, what quantity they wish to buy or sell, the minimum quantity required to fill the order, and a limit price. If a participating market maker agrees to engage in the transaction, the order will be filled.
The addition of this service will give Gemini the potential to compete with companies that cater to large-volume institutional traders such as hedge funds or banks. One such company is the Goldman Sachs-backed Circle Trade, which processes more than $2 billion in digital asset trades every month.
Block cryptocurrency trading is a relatively new addition to the market, however equities and futures markets have long employed this mechanism for ensuring that large trades do not have a disproportional effect on security prices. These transactions take place in what’s referred to as the “over-the-counter (OTC)” market—a catch-all term for any trading activity that does not take place on a formal exchange like the New York Stock Exchange or the NASDAQ.
Recently, block trading companies have appeared in Hong Kong and Australia, meeting demand from hedge funds and other institutions seeking to acquire large amounts of digital assets without disrupting the open market.
Depending on the success of Gemini’s block-trading integration, this feature may come to be the norm on digital asset exchanges. All eyes are now on Gemini’s main rival, Coinbase’s GDAX, to see if they will respond by implementing a similar service.
By allowing anyone to place block trades, Gemini is giving individual traders access to the same tools that traditionally have been reserved for institutional investors. However, just because block trading will be available to all Gemini customers, that does not mean all Gemini customers will actually be able to use the service—Gemini will require minimum quantities of ten bitcoin or one hundred ether to place block orders.
In a blog post, Cameron Winklevoss wrote, “In accordance with our commitment to an equitable, transparent, and rules-based marketplace, block orders will be electronically broadcast to participating market makers simultaneously, ensuring best execution and price discovery for those participating in the program. Block orders do not interact with our continuous or auction order books. Trade information will be published via our market data feeds ten minutes following the execution of a block trade.”